A year after the ‘Black Swan’ memo

To give you the best possible experience, this site uses cookies. If you continue browsing. you accept our use of cookies. You can review our privacy policy to find out more about the cookies we use.
Hello and welcome to Pipeline! It's been one year working from the home newsroom/office. Hope you're coping! This week: Sequoia's warning one year later, the cloud is on fire and Coupang and Roblox listings.
A year ago, Sequoia Capital published its Black Swan memo. TL;DR: There will be pain and it could last a long time — several quarters. That feels like a decade or several decades ago. (My last day in an office was Thursday, March 5, 2020, when I decided I needed to go in for an eye doctor's appointment anyway. I rode maskless on the train and bus that day.)
As we look forward to hopefully better times ahead, how far has the industry come since a year ago?
Sequoia's memo certainly put the industry on notice, if it wasn't already. There followed a period of uncertainty when it was unclear if the industry would suffer a downturn for months or even years.
Many venture firms, like other white-collar professional industries, shifted to work from home — though for some this meant Wyoming, Miami or Taiwan — while trying to help their startups that were navigating the pandemic. And, of course, many people in the industry had family members and friends who died or otherwise suffered during the pandemic.
But the market unexpectedly roared quickly back. It turned into a frenzy to invest in hot startups.
And some sectors were especially buoyed by forces unleashed in the pandemic, from distance learning and remote work to telehealth.
"While many have faced painful loss, physical and mental health crises and significant family and work obligations, public and private markets seem to be booming, especially in health and tech," says Deena Shakir, partner at Lux Capital. "Growth investors are facing more competition at higher valuations than ever before, and pre-seed investors have remarked that they are meeting founders of higher quality and in higher quantity than ever before."
So what's changed? Process-wise and investing-wise, the move to remote work has meant that VCs can take Zoom meetings with founders from anywhere. Some VCs have done deals without meeting a founder in person at all.
This is probably the biggest positive change to come out of the pandemic. For startups, this is generally a good thing, as it opens up many more opportunities. No longer is it standard for VCs to only invest in startups they can drive to from Menlo Park. Startups no longer have to move to Silicon Valley (though many may still do so). And they no longer have to fly in to meet a VC, as many had to before, as Mercedes Bent notes below.
"While remote work is not without its disadvantages, it has also reduced barriers to entry for founders in different geographies and forced behavior change in investors who may have previously preferred to deploy capital within a certain proximity of Silicon Valley," Shakir says.
On a macro level, the venture industry seems to have emerged just as strong if not stronger than before the pandemic. With the blowout results from large tech companies and some emerging startups, tech's role in the economy is just as important — if not more so — than before.
Until there's a market crash — and despite the government printing money as never before — low interest rates should keep capital flowing into public and private tech markets. That means that even average venture funds can proceed investing as before. If and when there is a crash, of course, capital could quickly dry up, especially for non name-brand venture firms.
On the diversity front, things have not improved much, though some firms have taken steps in the right direction. For example, Bessemer Venture Partners, Industry Ventures and others are working with Diversio, a firm that provides assessment and certification for diversity and inclusion. But overall, it seems like most venture firms have been preoccupied with first helping their existing startups once the pandemic hit, then scrambling to invest in the next hot startups once the market came back. Diversity and inclusion, as usual, seems to take the back seat.
It remains to be seen whether the pandemic will spur bigger future shifts in investing into areas of need such as health or climate. But VCs follow returns, and the pandemic has shown that some areas like enterprise remain big winners as others that came more into focus — such as biotech — this past year may drive further interest in the future.
Section 230 of the Communications Decency Act is the most-discussed and least-understood law governing the modern internet. This event will delve into the future of Section 230 and how to change the law without compromising the internet as we know it. Join Protocol's Emily Birnbaum and Issie Lapowsky in conversation with Senator Mark Warner. This event is presented by Internet Association.
Mercedes Bent is a partner at Lightspeed Venture Partners, which last year raised $4 billion across three new funds. She previously was an investor at Owl Ventures and has worked in finance roles at Goldman Sachs and the Federal Reserve. She focuses on investments in edtech, future of work, fintech and consumer and has invested in companies such as Stori, Outschool, Forage and United Dwelling.
What's your favorite pandemic meal?
I picked up using a sous vide [machine] in the pandemic, and it really changed my life. I can't believe how much easier it is to cook now. I can just assembly-line a bunch of meats and vegetables and add seasoning and vacuum seal them. You can have a restaurant-quality meal with so little effort
What is the biggest issue that your partners are thinking/talking about at your Monday partner meeting?
One thing I've been discussing especially is retail investing and the zeitgeist we've been going through with GameStop and Robinhood. I really think the consumerization of investing is happening now. And people are drawn to investing for so many reasons. Savings rates are high and interest rates not as high. People are looking for better returns for their money. The social phenomenon for investing feels like it can be a part of something big.
What's one way you changed working in 2020 that you plan to keep going forward?
Taking first meetings on phone or Zoom. Before, I used to do a lot of first meetings in person. It's a bit inefficient. Sometimes you have to fly across the country to do that. But you don't even know if you'll like the company or not. So it can be a waste of everyone's time. When we go back. I think I'll only do in person meetings for the second or third meeting when I know there's interest to go further on.
What problem do you want to see a startup solve?
Edtech. You have so much content out there: Netflix, Wikipedia — there's a lot of stuff you can really learn from. But there's nothing you can layer on top of that and connect with all the people watching or reading to connect for learning purposes. There's things for being social and having a Netflix party with a [browser] extension to watch with friends. But what about for schools and actually teaching and learning?
What company or startup sector is the most underrated right now?
I think what could be the most underrated and surprising story in the next year or two is the AR industry. I feel like I used to look at VR and XR back in 2016 there was a trough of disillusionment. The industry didn't live up to expectations. But it could change in the next year or two.
The other thing — that's not a sector — is women received just 2% of venture funding and Black and Latinx and indigenous/Native people also received little funding. To me that's consistently underrated. We know they outperform the market.
Thanks for reading this week's Protocol Pipeline. If you like what you're reading, sign up here to get it in your inbox. Send story tips and newsletter feedback to tgeron@protocol.com.
To give you the best possible experience, this site uses cookies. If you continue browsing. you accept our use of cookies. You can review our privacy policy to find out more about the cookies we use.